Xi’s big speech: Five implications for the Belt & Road Initiative

On Wednesday, President Xi Jinping opened the 19th Communist Party of China (CCP) Congress with an impressively long monologue lasting 3 hours and 23 minutes. The speech set the tone for discussions to be had over the next week, and provided a roadmap for Chinese policy over the next five years and indeed through into the middle of the century.
Xi laid out his contribution to the CCP’s theoretical framework, named “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” (习近平新时代中国特色社会主义思想), meaning that Xi’s Thought now equals Mao Zedong’s and Deng Xiaoping’s. This is very significant as both Mao and Deng continued to play an important role in Chinese politics irrespective of the official post they held within the state and/or CCP, and presumably, so will Xi. That means XI’s major projects, including the Belt and Road Initiative (BRI) will be harder to abandon for political reasons, even after Xi leaves the Presidency. Many observers are also pointing to Xi’s introduction of a 2035 national goal of “basically realizing socialist modernization” as evidence of his intent to stay in power beyond his second term. Hence BRI is here to stay and as long as Xi exercises some degree of power, BRI will be made to succeed.

Beyond this, the speech did not tell us much new about the formulation BRI, which had its own unique summit in Beijing in May 2017. Much we’d heard before; that the BRI would continue to be pursued as a “priority” and would serve as a “new platform for international cooperation” that promotes shared development. However, there were five areas related to BRI that did catch our eye.

1) Giving and taking: The Belt and Road Initiative is the strongest manifestation of China’s “go outwards” policy devised by Jiang Zemin in 1999 which promoted overseas investment and trade. In his speech, Xi mentioned that “going outwards” should be seen as an “equal priority” with “bringing in”. The terminology, “equal priority” is a new and strong statement, and may indicate a readiness to improve market access for foreign investors. If “bringing in” is also seen as part of BRI, then we can expect more international investors partaking in the initiative.

2) Reshaping global trade? The speech mentioned that “new models of trade” would be promoted. The concept was little further elaborated, but is in line with previous Chinese calls that the global trade system is highly imbalanced. Most famously, People’s Bank of China Governor Zhou gave a speech in 2009 in which he described the current trade system premised on the dollar as highly unsustainable. Instead, a system premised on a basket of currencies, and perhaps one super-sovereign currency (such as the IMF’s SDR) would be more sustainable. Given its size, the BRI is a key vehicle for the Chinese government to implement its thinking behind the global trade and investment system. Whether that means further RMB internationalisation or the promotion of a super-sovereign currency is unclear, but what is clear is that China now feels in a sufficiently strong position to start influencing the global trade debate to a greater extent.

3) Take-offs and trade-offs: Considerable emphasis in Xi’s speech was placed on achieving China’s two centenary goals, which were first advanced in 2012 when Xi came into power. They are both domestic goals: the first aims for China to become a “moderately prosperous” society by 2020 and the second aims to have completed modernization by 2050. To achieve those goals, economic growth domestically needs to be sustained. Yet, there exists the possibility of a trade-off between the centenary goals and objectives related to the BRI, especially in the case of a domestic economic slowdown. In such a scenario, the government would likely have to increase its fiscal stimulus to support growth and meet the centenary goals. By re-allocating limited investment pools towards the domestic economy, it could well come at the cost of further BRI investments abroad.

4) Anti-corruption and BRI: Renewed focus in the speech was placed on anti-corruption efforts. In recent months, anti-corruption efforts have been extended to overseas acquisitions; most notably from December 2016 the regulator began clamping down on acquisitions that were deemed excessively expensive or with dubious motives. The clampdown aims to prevent capital outflows, especially by those trying to siphon money out of China. Whilst recent data suggests such efforts are working, and outflows have stabilised, the number of overseas investments under the BRI have risen dramatically. One likely explanation is that companies have started branding their overseas investments as BRI investments in order to improve the likelihood of approval by the regulator. With Xi renewing efforts to clamp down on corruption, we would expect this phenomenon to accelerate and in turn BRI investments to constitute a greater proportion of China’s total investments abroad.

5) Innovate, innovate, innovate: Xi spent much time outlining how China aims to become “a country of innovators” and how innovation will become the “primary force in driving development”. BRI will have a key role to play here through intellectual exchanges, technology transfer, mergers/acquisitions and initiatives related to start-up incubators and hubs. Numerous start-ups are already being attracted to China on the basis that they can scale up using Chinese capital and then benefit from market access both in China and at home. Chinese backed incubators and venture capitalists, including Silk Ventures, are also widening their presence internationally.

In summation, Xi’s speech was historic in that it strengthened his position and control over the CCP and the country. While much remains unclear about the Belt and Road Initiative, one thing is clear, the 19th Communist Party Congress has reinforced Xi’s position of power and by extension, the prospects for the Belt and Road Initiative. We continue to watch closely.

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